Go long gilts into the budget, UBS says
TLT•UBS recommends a long position in 10-year UK gilts ahead of next week’s budget, targeting a 5.2% yield from 5.36%. The bank says the budget could remove a 15–20 basis-point fiscal-risk premium, but expects gilt yields to remain above 5% over the next couple of quarters.
1. UBS recommends gilt trade
UBS recommends traders go long 10-year gilts ahead of next week’s UK budget, with a target yield of 5.2%, compared with 5.36% when the recommendation was reported. The bank says policy uncertainty has left a 15–20 basis-point fiscal-risk premium in gilts this year, which it expects the budget to remove.
2. Trade seen as short term
UBS economists expect modestly higher deficits than in the spring, by 0.2%, but say higher energy prices and interest rates have limited the government’s room to manoeuvre. The bank describes the trade as tactical and says it expects 10-year gilt yields to stay above 5% over the next couple of quarters, with geopolitical uncertainty around inflation remaining a headwind.
